Description of tax policies and tax regimes

Ørsted A/S – Annual report – 31 December 2017

Industry: utilities, energy

5.1 Tax policy and tax regimes

Our tax policy

We acknowledge that tax plays a key role for society. We also believe that a responsible approach to tax is essential to the long-term sustainability of our business in the countries in which we operate.

We are subject to a number of different rules on direct and indirect taxes as well as taxes collected on behalf of the public authorities. Also, many transactions involve different segments across national borders and between different tax systems. This complexity demands a strong focus on the management of our tax affairs.

We regularly assess our internal processes and controls to ensure that we comply with all local and international tax rules.

We only use structures that have commercial substance and meet the spirit of the relevant local or international tax law.

We use the incentives and tax reliefs applying where we have commercial activities, and where this is the legislator’s intention.

As a proactive approach to handling any uncertainties about the interpretation of tax rules, we have an open dialogue with the national tax authorities in Denmark and abroad.

At the end of 2017, our major activities were in Denmark, the UK and Germany.

International joint taxation

In 2005, we chose Danish international joint taxation. Under international joint taxation, subsidiaries are included in joint taxation from the date they are consolidated in the consolidated financial statements and up to the date on which they are no longer consolidated. International joint taxation means that profit earned abroad is taxed in Denmark, and that depreciation and amortisation for tax purposes and expenses incurred abroad can be deducted in the Danish statement of taxable income.

The rules concerning Danish international joint taxation merely result in changes to the timing of the tax payments in Denmark. Thus, it leads to increased Danish tax payments at a later point in time, corresponding to the tax savings realised in previous years.

We have continuously assessed when it will be the most appropriate time to exit from the international joint taxation scheme, and we currently expect that this will be for the income year 2017, which is reflected in the annual report. We will make the final decision in 2018 when preparing the tax returns for 2017.

Therefore, the retaxation liability has been transferred to tax payable in 2017.

In 2016, deferred tax payments were recognised as a retaxation liability and amounted to DKK 1,730 million. See note 5.4.

Local taxes

In terms of taxation, we were affected by completed construction contracts in connection with the construction of offshore wind farms in Denmark in 2017.

5.1 Tax policy and tax regimes

We have made significant investments in offshore wind farms in the UK and Germany, resulting in the accumulation of large tax assets in recent years. Accordingly, we have not paid taxes in the UK and Germany. Going forward, this will change as the offshore wind farms are commissioned and generate positive results.

We expect to start paying tax in the UK in 2018, and in 2019 in Germany.